Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

November 09, 2011 00:51 ET

Matrix Asset Management Inc. Reports Third Quarter Results and Declares Dividend

HALIFAX, NOVA SCOTIA--(Marketwire - Nov. 9, 2011) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the third quarter ended September 30, 2011 and announced the next regular quarterly dividend of $0.015 per share would be payable on December 7, 2011 to shareholders of record on November 22, 2011.

Highlights

Financial results for the third quarter were substantially impacted by one-time expenses associated with merger and acquisition initiatives, including the now terminated proposal by GrowthWorks Canadian Fund to merge with the VenGrowth Funds. During the quarter, the Company generated $(0.4) million in EBITDA, $1.1 million in recurring EBITDA, and $(0.7) million in Free Cash Flow. Net loss was $(0.1) million.

During the second quarter, Matrix focused on planning significant expense reductions, estimated to reduce annual recurring expenses in fiscal 2012 by approximately $4.1 million. These reductions arise from on-going integration synergies and right-sizing of expenses to current levels of assets under management ("AUM"). Related to this plan, expense reductions totaling $3.7 million were implemented by the end of the third quarter.

David Levi, President and CEO of Matrix, commented: "During the third quarter of 2011, we continued to work on a number of initiatives to grow our business through acquisitions, including our new strategic arrangement with First Affiliated. We continue our cost control discipline with the objective of meeting our lower operating cost targets."

Corporate Overview

Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $1.9 billion in assets through three operating divisions:

  • Institutional asset management, operated through SEAMARK, which offers portfolio management to institutional and high net worth private clients, including through managed portfolio advisory ("wrap") programs of leading Canadian investment dealers.

  • Fund management, operated through Matrix Funds Management (a division of GrowthWorks Capital Ltd.) which manages the Matrix family of mutual funds and specialty funds, which are distributed through investment dealers and financial planners across Canada.

  • Venture capital and private equity, operated through GrowthWorks, which manages funds in the venture capital and private equity sector. With seven offices located in major and regional centres across Canada, GrowthWorks has a true national investment presence and manages venture capital funds for individual and institutional investors.

This diversified set of operations delivers multiple sources of revenue across several asset and client groups.

Summary of Third Quarter Financial Results – Unaudited

Results of operations for Matrix for the third quarter consolidate the results of Matrix and its subsidiaries. Due to the January 15, 2010 effective date of the business combination of GrowthWorks and SEAMARK, the financial results of the Company for the 2010 comparative period do not include contributions from SEAMARK for the 15 days from January 1, 2010 to January 15, 2010. Matrix reports its consolidated statement of financial position, statement of income (loss), statement of comprehensive income (loss), statement of shareholders' equity and cash flows in accordance with International Financial Reporting Standards ("IFRS" or also referred to as generally accepted accounting principles or GAAP) in Canadian dollars.

The following table sets out selected consolidated financial information about Matrix for the three months and nine months ended September 30, 2011 compared with financial information for Matrix for the same periods in 2010.

For the three
months ended
September 30, 2011
(in $ thousands
) For the three
months ended
September 30,2010
(in $ thousands
) For the nine
months ended
September 30, 2011
(in $ thousands
) For the nine
months ended
September 30, 2010
(in $ thousands
)
Revenue
Management and administration fees 6,503 7,603 20,685 23,977
Additional administration fees 352 397 1,076 1,239
Incentive participation dividends 265 1,306 1,533 2,517
Interest income 1 14 26 29
Other income 185 161 723 557
Total Revenue 7,306 9,481 24,043 28,319
Expenses
Selling, general and administrative 5,630 6,670 19,733 20,260
Share-based compensation 154 120 382 273
Trailer fees 631 563 2,048 1,788
Amortization - capital assets 82 124 224 338
Amortization - deferred sales commissions 592 704 1,799 2,127
Amortization - asset management contracts 287 315 861 945
Interest 192 227 624 899
Accelerated option vesting costs - - - 948
7,568 8,723 25,671 27,578
(Loss) income before merger, acquisition and
other special project costs
(262 ) 758 (1,628 ) 741
Merger, acquisition and other special project costs
1,431

343

5,024

896
(Loss) income before taxes (1,693 ) 415 (6,652 ) (155 )
Income tax recovery (1,631 ) 12 (5,532 ) (87 )
Net (Loss) Income (62 ) 403 (1,120 ) (68 )
Basic earnings (loss) per share (in $) - 0.01 (0.03 ) -
Diluted earnings (loss) per share (in $) - 0.01 (0.03 ) -
NON-GAAP MEASURES
EBITDA(1) (386 ) 1,905 (2,762 ) 5,375
Add (deduct) non-recurring items, net(2) 1,529 424 6,772 1,535
Recurring EBITDA(3) 1,143 2,329 4,010 6,910
Free Cash Flow (5) (685 ) 1,692 (3,185 ) 6,886
(Loss) income before taxes (1,693 ) 415 (6,652 ) (155 )
Add (deduct) non-recurring items, net(2) 1,529 424 6,772 2,483
Recurring (loss) income before taxes(4) (164 ) 839 120 2,328
Dividends declared and paid 716 78 2,140 222
As at
September 30, 2011
(in $ thousands
) As at
September 30, 2010
(in $ thousands
) As at
December 31, 2010
(in $ thousands
)
Cash, cash equivalents and investments 2,047 15,219 14,482
Total assets 35,036 42,998 41,140
Total long-term liabilities 8,236 9,238 8,388
Total assets under management(6) 1,900,000 2,700,000 2,600,000
Notes:
(1) EBITDA (defined by Matrix as earnings before interest, taxes, depreciation and amortization and other non-cash items) is a measure used by many investors to compare issuers on the basis of their ability to generate cash from operations. Management believes EBITDA is a useful supplemental measure of operating performance as it provides an indication as to cash available for working capital needs, capital expenditures and dividends.
(2) Non-recurring items are described in Matrix's Management's Discussion & Analysis posted on SEDAR.
(3) Management believes "recurring EBITDA" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate EBITDA generating capacity of the business may be by adjusting EBITDA for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on EBITDA.
(4) Management believes "recurring income (loss) before taxes" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate income before taxes generating capacity of the business may be by adjusting income before taxes for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on income before taxes.
(5) Management believes "Free Cash Flow" (defined by Matrix as EBITDA less interest paid, commissions paid and net taxes (payable/refundable as filed)).
(6) Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned.

Outlook

The asset management industry is affected by economic and market conditions which strongly correlate with asset inflows/outflows and asset values, both of which drive Company fee revenues. For the period ended September 30, 2011, economic and market conditions were volatile. While the first half of the period saw positive equity markets and economic news, fears of sovereign debt default and a European banking crisis contributed to global equity market declines in Q3. The Canadian economy shrank in Q2 2011 raising concerns about a "double dip" recession. The Bank of Canada has cut its growth projections for the Canadian economy for the remainder of 2011 and 2012.

Central banks around the world continue to apply monetary stimulus to the economy. Unemployment rates remain stubbornly high in many countries and productive capacity is not fully utilized. As a result, central banks are keeping interest rates low to spur investment and economic activity. Recent statements from the Federal Reserve and Bank of Canada have lead analysts to speculate that accommodative monetary policy will remain in place as long as inflationary pressure remains muted. Low interest rate environments typically push investors to seek returns in higher risk equity investments, which generally provides positive momentum for equity markets.

While monetary policy is accommodative around the world, accommodative fiscal policy is complicated by high sovereign debt levels. Governments in Japan, many western European countries, and the United States have record debt levels, resulting in governments having to balance fiscal initiatives aimed at promoting growth with demands from the bond market for tighter spending controls.

We are cautiously optimistic on the economy and equity markets if a solution to the European banking crisis can be negotiated. Low interest rates drive greater investor demand for equities and higher return investments. Corporate earnings remain impressive as does the strength of corporate balance sheets which should support higher equity market levels and, in turn, drive higher management fees. Large corporations have record cash balances which should bode well for M&A exit market activity for venture capital backed companies. High value M&A exit activity in funds managed by the Company's venture capital division increases the prospect for carried interest payments / incentive participation dividends. Overall, should these industry trends develop and be sustaining, then this would present favourable opportunities for the Company's asset management business.

The asset management industry in Canada continues to experience a consolidation trend. Many small players realize they need to attain greater scale in the current environment. Firms with less than $1 billion in AUM are the most challenged to achieve sustainability and profitability. This trend presents an ongoing opportunity for Matrix as it has proven experience in mergers and acquisitions. It also has a desire to work with other organizations to create greater value through suitable strategic transactions.

The Company, through its operating units, will also continue to seek to attract additional AUM through competing for new investment management mandates and through positioning and re-positioning its investment fund offerings to meet the current needs of investors. Strategic assessment and planning to strengthen our mandates and offerings will continue to be a focus. In particular, the Company sees further demand and strength in innovative new growth, resource-oriented and income investment products that can provide value-added features for investors and utilize our best portfolio management resources to attract additional assets for management. The Company also expects to realize additional operating efficiencies over the coming quarters as it continues to integrate its diversified asset management platform.

Matrix's third quarter financial statements and MD&A are available on the SEDAR website at www.sedar.com, as are the financial statements of GrowthWorks Ltd. for the year ended December 31, 2010.

About Matrix (www.matrixasset.ca)

Matrix (TSX:MTA) is a diversified asset and wealth management company with approximately $1.9 billion in assets under management and offices across Canada. The Company's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. The Company delivers its services through three main operating subsidiaries serving institutional, high net worth, and retail investors.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements, including statements regarding the operations, business, financial condition, expected financial results and profitability, expense reductions, dividends and dividend policies, performance, targeted acquisitions, prospects, opportunities, new products, priorities, goals, strategies, accounting policies and estimates and outlook of Matrix for the current fiscal year and subsequent periods. Forward-looking statements are predictive in nature and are not based upon historical fact. Forward-looking statements are based upon beliefs and assumptions, including with respect to levels of Matrix's AUM and expenses and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM, the continuation of portfolio and fund management and advisory engagements, the extent and effectiveness of cost-saving measures and the impact of such measures and other factors on earnings, tax rates and laws, performance of managed venture capital investments relative to performance fee return thresholds, and the absence of extraordinary or one-time expenses not currently known to management. While management considers these beliefs and assumptions to be reasonable based on information currently available to it, these statements are subject to numerous risks and uncertainties and no assurance can be given that such beliefs and assumptions will prove to be correct. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements due to many factors including, but not limited to, risks associated with institutional, mutual fund and venture capital fund management sectors generally, market, economic, political and other risks affecting portfolio performance, interest and foreign exchange rates, managed fund sales and redemptions, demand for financial products offered by Matrix and the impact of a lack of demand on Matrix's AUM, revenues and earnings, changes to regulatory requirements, accounting and reporting policies (including the adoption of IFRS) and tax laws, Matrix's ability to effectively respond to competition and technological change and recruit and retain key management personnel, uninsured losses, risks associated with completing proposed financings and targeted acquisitions, introducing new products, accessing needed capital resources from internal and external sources and Matrix's ability to successfully integrate acquired operations and implement cost savings measures and growth strategies. Many of these risks are beyond the control of Matrix.

Readers are cautioned to consider these and other risks, uncertainties and potential events carefully and not place undue reliance on forward-looking statements. Other than as specifically required by law, Matrix undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results or other factors.

Non-GAAP Measures

"EBITDA", "recurring EBITDA", "Free Cash Flow" and "recurring income (loss) before taxes" are not measures recognized under Canadian generally accepted accounting principles ("GAAP"). However, management of Matrix believes that most shareholders, creditors, other stakeholders and investment analysts prefer to have these measures included as reported measures of operating performance, a proxy for cash flow, and to facilitate valuation analysis. These non-GAAP measures do not have any standard meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-GAAP measures are not alternatives to measures determined in accordance with GAAP and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-GAAP measures should be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-GAAP measures, including reconciliations of these measures to the nearest GAAP measures, please refer to the "Non-GAAP Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

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